ARTICLES > Investing - Part one.
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Where Should I Invest? From time to time FORTIfi clients ask about investing money. This is the first of a four part article on investments. Parts one and two are in this July FORTIfi July Newsletter. Parts three and four will be in next month's August FORTIfi Client Newsletter.We all invest money at some time or another. It may be a large amount, it may be a small amount. Chances are you have some money invested right now. Investing simply means doing something with your unused money to make it grow. Where should I invest? There are a number of places we can invest money. The most common are a bank, a superannuation scheme, property, and shares. To decide where to invest you’ll need to consider a number of factors;
► Time: The question you need to answer is, “What am I saving for?” If it’s retirement, then you may have 30 or 40 years to save. If it’s an overseas trip, it will be a lot sooner, maybe just two or three years away. In general terms there are three ways to look at the time period of investment;
► Access: You need to decide how easy you want access to your funds to be. Some investments are locked away for a period of time and to extract them means losing money via a penalty fee. Investors call this access to funds, liquidity. A high liquidity investment is one that you can access at anytime. An investment with low liquidity cannot be easily accessed. ► Return: The real question here is, “Am I more interested in the growth of my investment, or in gaining some regular income from it?” The answers to this question is very much tied up in the answer to those relating to time, access and risk. The reality is, we all want a high return, but high returns mean greater risk and, often, a longer period that our money is tied up. ► Risk: This is a balancing act – we all want a high return, but with that comes a higher risk. Low risk means greater security and peace of mind, but the returns are not as high. With low risk investments the outcome is usually known or predicted at the time of investment. e.g. you go to a bank and invest your money in a high interest account. You will be told upfront what the interest rate is and you’ll be able to calculate what that means in terms of your yearly return. With high risk investments the outcome is not as predictable. Sure, the sales people may make bold promises or predictions, but that is not the same as a predetermined return. This is why investment advisors suggest we diversify our investments. That means we don’t put all our money in one place. We balance our investments over some low risk and some higher risk investment types so that if the high risk investments don’t perform as well as we’d hoped we still make some money through our low risk investments. Click here for Part two of FORTIfi's series on Investing. Click here for Part Three of FORTIfi's series on Investing. Click here for Part Four of FORTIfi's series on Investing. Read the article from the FORTIfi Resource Centre: Ten Things to do to Help Get Your Finances in Order. |